Oman Gas Projects Could Undermine U.S. LNG Market Ambitions

Two separate projects in the sultanate of Oman are about to turn the tiny Gulf country into an important international liquefied natural gas (LNG) player that the U.S. will have to contend with in its ambition to become the leader of this market.

The first one is an agreement with Iran for the construction of a 400-kilometer pipeline that will transport Iranian natural gas to be liquefied at the three-train processing facility of Oman LNG.

The plant has an annual capacity of 10.4 million tons of LNG, of which 1.5 million tons is spare and will be used for the liquefaction of Iranian gas. The gas will then be shipped to Asian and European markets.

The second project is BP Oman’s development of shale gas in the Khazzan field. The company recently announced that it has passed the 65 percent mark towards the project’s completion and the gas will start flowing by the end of 2017.

When the Khazzan project comes on stream, Oman’s natural gas reserves will automatically rise by as much as 40 percent. These reserves were estimated by BP at 24.9 trillion cubic feet at the end of 2014.

Iran, on the other hand, has the largest reserves of natural gas in the world—again according to BP estimates. The country has 1,201.4 trillion cubic feet of proven reserves that it will aim to start developing as quickly as possible, now that the sanctions are off, along with oil.

The news provides food for thought for U.S. gas companies that are currently investing in LNG processing and export terminals on a considerable scale in a bid to move away from the saturated domestic market and find new ones with stronger demand.

As we wrote earlier, the U.S. is already in for stiff competition on the LNG market from Australia, which just saw the completion of the largest and most expensive LNG project in the world, Chevron’s Gorgon LNG. Add to that Oman’s plans to become a key player in the gas field, and an already bleak picture will only become bleaker. Even Australian projects are running into trouble. Woodside just announced its decision to scrap the $40 billion Browse LNG project in Australia. Related: New Biofuels Alternative Could Upend Oil Markets

For the time being, the U.S. gas producers have no useful move. They can’t drop their work on the terminals, whatever it costs, in order to stay in the game, even if they will not be able to profit from it for a while.

As for Oman’s ambition to become a big gas player, with Iran’s reserves to count on, it seems a pretty likely prospect.